Morning Brief: GE Investment Shifts from China to Australia

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General Electric is shifting its growth plans from the fast-developing Asian economies to resource rich nations (WSJ). In targeting growth in markets such as Australia, GE is betting on high energy and mineral prices and shifting away from difficult business environments. China’s requirement of 50-50 joint ventures with local businesses has frustrated GE leaders such as Vice Chairman John Rice, who said the rules mean GE operations “take longer to put together and longer to mature” than if GE had full control. GE leaders have also complained that Chinese state-owned enterprises often act more like rivals than partners.

Debt and Deficits

Treasury Considers Floating Notes

Experts expect Treasury officials to authorize issuing floating-rate debt for the first time (WSJ). Floating-rate debt would allow Treasury to replace some of its short-term Treasury Bills with new financial instruments that would lock up funds for several years. Though floating-rate debt is still exposed to volatility in interest rates, Treasury would pay lower short-term rates instead of higher long-term rates, and reduce the number of auctions. The United Kingdom and Italy already issue floating-rate debt.

As the United States continues to run budgets with high deficits, politicians debate different plans to reduce government costs and to raise revenue. This CFR Backgrounder by Jonathan Masters outlines the competing policy paths on federal fiscal reform, and the global consequences for failing to bring down U.S. debt.

Corporate Regulation and Taxation

Federal Reserve Criticizes Stress Tests

This week, the Federal Reserve will send feedback letters to the largest U.S. banks on this year’s stress tests; many banks will receive criticism of their methodologies (Bloomberg). The Fed’s primary concerns include dividend plans that could drain too much capital and modeling a housing downturn by decreasing prices at the same rate nationwide, rather than taking into account local price trends. Bankers continue to complain the stress tests lack transparency and overestimate the losses banks would face in a downturn.

Education and Human Capital

States Grapple with Tuition Growth

Last year public universities in all fifty states saw tuition increases, but this year Arizona is planning to freeze tuition (Stateline). Public colleges are under pressure as states cut spending to balance their budgets, and students strain under rising costs. Efforts appear to be working; this year’s increases are expected to be lower than 2011’s 7.4 percent average. However, these lower percentage hikes are relative to a much larger base; in sixteen states, student costs have risen by more than a third over the past five years, even after adjusting for inflation.

Innovation

Microsoft Backs Barnes and Noble

The New York Times reports that Microsoft has agreed to invest $300 million into Barnes and Noble’s Nook e-reader. The move reinforces the Nook in its battle for e-book supremacy against the Apple’s iPad, the Amazon Kindle, and other tablets powered by Google’s Android platform. The non-exclusive alliance will also give Windows 8’s forthcoming app store an integrated content provider. Experts also expect a line of Nook devices based upon Microsoft’s Windows 8 tablet platform. The deal’s valuation implies the Nook division is worth more than its parent company.

Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth.

Infrastructure

Utilities Dumping Coal

With the price of natural gas at a record low, utilities are moving to cut coal consumption (WSJ). Utilities are reopening negotiations on contracts, deferring and cancelling deliveries, and stockpiling excess coal. The CEO of coal supplier Peabody Energy estimated that demand could drop by 100 million tons—about 10 percent—this year, on top of last year’s reductions. While natural gas prices are at record lows, not all utilities are enjoying lower fuel prices; some are experiencing higher coal costs under long term contracts.

Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness.

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About This Blog

The United States faces enormous challenges created by an increasingly dynamic and competitive global economy. This blog offers a portal to the Renewing America initiative, which sponsors research, analysis, policy ideas, and dialogue on how best to revitalize the country's economic strength and build the foundations for future prosperity and influence.